Why Economists Are Paid So Much

Economists are paid more than other academics because they are scarce relative to demand and they have specialized skills that are valued in consulting and finance.

Supply, demand and economists.

Source: Getty Images

The profession of economics periodically finds itself under rhetorical attack from sociologists. Part of this is due to the differing political slants of the disciplines -- sociology tends to lean heavily to the left, while economics, being fairly well balanced between liberals and conservatives, is thus the most right-wing discipline in academia. Part of the rivalry is due to the attempts by some economists, such as Gary Becker, to model phenomena such as discrimination and family life that were traditionally in the realm of sociologists. In the siloed social sciences, people fear such “imperialism.”

Sociologists often feel that economics holds itself out as “dominant” or “supreme” among the social sciences. That’s the upshot of a new discussion paper from the Max Planck Sciences Po Center on Coping with Instability in Market Societies. The paper, called “The Superiority of Economists,” claims that economics reigns over the social sciences, and that economists are supremely arrogant, insular and hierarchical:

 In this essay, we investigate the dominant position of economics within the network of the social sciences in the United States. We begin by documenting the relative insularity of economics, using bibliometric data. Next we analyze the tight management of the field from the top down, which gives economics its characteristic hierarchical structure. Economists also distinguish themselves from other social scientists through their much better material situation (many teach in business schools, have external consulting activities), their more individualist worldviews, and in the confidence they have in their discipline’s ability to fix the world’s problems. Taken together, these traits constitute what we call the superiority of economists, where economists’ objective supremacy is intimately linked with their subjective sense of authority and entitlement. While this superiority has certainly fueled economists’ practical involvement and their considerable influence over the economy, it has also exposed them more to conflicts of interests, political critique, even derision.

Reading the paper, some of this ends up sounding far-fetched. A lot of academic disciplines look down on other disciplines -- that’s part of the fun of academia. Psychologists certainly don’t think economists reign supreme over them. Nor, I assure you, do finance professors. It’s mostly sociologists who seem to have an inferiority complex. (To be fair, economists are not shy about trumpeting their superiority over sociologists!)

As for economists’ “influence over the economy,” I am going to take a wild guess and say that it isn't because of their arrogance or hierarchical insularity or “sense of authority and entitlement.” It’s probably because…drumroll…economics is the discipline that studies the economy. If politicians want to know how to reduce cancer rates, they should go to a biologist. If they want to know how to shoot missiles at Vladimir Putin, they should go to a physicist. If they want to know how to boost productivity at U.S. companies, or increase employment, or auction off broadcast spectrum rights, whom should they ask for advice? A sociologist?

But there is one way in which economists clearly do dominate the other social sciences, and that is in the amount of money they make. The authors of the paper point this out in a nice graph:


pay chart


The authors don’t ask why this is, but they hint at an explanation that’s right out of Econ 101. Economists are  scarce relative to demand. They have many lucrative outside options. The most important of these are the consulting and financial industries.

But why do economists have the option to go work in consulting and finance? The answer is simple: They have the technical skills to do so.

I’m not talking about fancy math. No one hires you to do real analysis -- that’s just something economists learn as an IQ test, then never use. If financial companies need someone to do serious math, they will hire a mathematician or a physicist. As for the general equilibrium models that macroeconomists call “math,” well…no one uses those for anything except publishing macroeconomics papers.

The technical skill I am talking about is statistics. Economists learn a lot of statistics -- much more than anyone else except for applied mathematicians and statisticians. There is a whole branch of economics, known as econometrics, dedicated to statistics. Most of the empirical work that economists do is applied statistics.

Statistics is hugely valuable in the real world. Simply knowing how to run, and interpret, a regression is invaluable to management consultants. Statistics is now permeating the IT world, as a component of data science -- and to do statistics, economists have to learn how to manage data. And statistics forces economists to learn to code, usually in Matlab.

As Econ 101 would tell us, these skills command a large premium. Unless universities want to shrink their economics departments, they have to shell out more money to keep the professors from bolting to consulting and financial firms.

If sociologists want to crack this bastion of economists’ “superiority,” they need to tech up with statistics. Sociologists do use some statistics, but in general it’s just much less rigorous and advanced than in economics. But there is no reason why that has to continue. Sociologists work with many quantitative topics. There are vast amounts of quantitative data available to them -- and if there is a shortage, survey research centers such as the University of Michigan’s Institute for Social Research can generate more.

Using more and harder statistics will probably require more quantitative modeling of social phenomena. But it won’t require sociologists to adopt a single one of econ’s optimization models, or embrace any economics concepts. It won’t require giving one inch to the “imperialist” economics of Gary Becker’s disciples. All it will require is for sociologists to learn a lot more advanced statistics, and the data management and coding skills that go with it. The best way to make that happen is to start using a lot more sophisticated statistics in sociology papers. Eventually, the word “sociologist” will start to carry the connotation of “someone who is a whiz with data.” I’m sure some departments have already started to move in this direction.

Sociologists, someday you too will be able to command high salaries and send your surplus doctoral students to lucrative careers in consulting, finance and data science. It’s time to stop whining and tech up. 

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.